5 outsourcing mistakes that will kill your startup

June 13, 2012 11:00 AMJayson DeMers

Several months ago I was on the phone with the CEO of an SEO agency in Utah who was looking for white label SEO link building services for her clients. She wanted to know how my agency was sourcing the work; when I told her that the manual labor was largely performed overseas in the Philippines, she scoffed. “How can you offshore jobs when the American economy is so awful right now? There’s no way I would ever consider doing that.”

Needless to say, that conversation ended quickly. But the reality is that outsourcing has not only allowed the business to operate efficiently, but has also actually enabled the business to create dozens of American jobs. Without outsourcing, those American jobs wouldn’t exist.

Creating American jobs makes us feel warm and fuzzy, but if you’re launching a startup, there’s one thing you’re definitely interested in: money. And you know that to make money, your business is going to need to separate itself from the competition – you’re going to need a competitive advantage.

Outsourcing is one way to optimize efficiency and achieve that competitive advantage, but there’s a minefield of potential mistakes that can severely hamper your efforts or even kill your startup.

Mistake #1: Outsourcing Something that Shouldn’t be Outsourced
The lure of sending work overseas to cheap labor is enticing, but you need to tread carefully when outsourcing. Mission critical tasks, tasks that require creative thinking coupled with experience, and tasks that “touch” the client should all be kept in-house. Call centers are routinely outsourced and significantly touch the client/customer, but the impression left on the client is often less than stellar.

Mistake #2: Not Sufficiently Vetting Your Staff
As a busy CEO of a new startup, there’s nothing worse than training an employee and having them disappear on day 2. To prevent this, hire an employee and, before you train them, give them an extremely difficult task. This task should be something that they can figure out how to do if they’re resourceful. One of my favorites is to ask them to set up a WordPress blog, make it look good, and post content to it. Most overseas workers will have no experience doing this, but there’s plenty of information on the Web explaining how to do it. If they accomplish the task, then you know you’ve got a keeper.

Mistake #3: Hiring Based on Technical Skills Rather than English Proficiency
One of the most common mistakes I see (and have been guilty of, myself) is hiring based on technical skills listed on a resume rather than English proficiency. This mistake will lead to miscommunication, incorrectly-performed tasks, poor company representation, and major headaches for you. Rather than grill them on past experience doing X and Y tasks, just chat with them for a half hour. Take note of the following:

How’s their grammar?

How’s their spelling?

How fast do they type?

Those are the qualities that you can’t train but will pay dividends in the end.

Mistake #4: Insufficient Management
American employees are accustomed to working from home with little supervision, but trying to do the same with an overseas employee (or team of employees) could kill your startup. I learned this lesson the hard way. I thought I was being a great boss and allowing my employees autonomy. Instead, when it came time to report to my clients, I was faced with a mountain of work that either hadn’t been done or hadn’t been done properly.

Ideally, you should set up an office and hire a manager to supervise your staff. If you don’t have the budget for an office, require daily work reports from your employees so you can monitor their work. Consolidate your employees under one manager that you hire and supervise, or assign management to an assistant stateside. Use Dropbox and Google Docs to organize and visualize the work.

Mistake #5: Failure to Award Responsibility and Reward Good Work
Every entrepreneur eventually faces the need to let go and entrust certain responsibilities to their employees. This can be especially scary when you’re assigning work to an overseas employee who you’ve never even met, but failure to do so will likely result in you losing your employee altogether.

Assign meaningful work and educate your employee on the importance of the work and role in the business. After promoting one of my employees and assigning her managerial work, she told me that she now looks forward to every day because she loves the sense of responsibility and importance in the overall business that her job has.

Give raises regularly and reward good work. A simple tip of $50 on one month’s paycheck will build loyalty+ and mean much more to your employee than you probably imagine. Failure to do so will result in employees disappearing or getting lured away by other firms looking for trained overseas workers.

Conclusion
Whether you embrace or cringe at the thought of outsourcing, it’s worthwhile to remember that you have an opportunity to support the lives of entire families for a fraction of what you’d pay to keep those jobs stateside, all while creating American jobs and achieving the competitive advantage you need to foster your new startup. Avoid these mistakes and you’ll reap the benefits of outsourcing.